I got the answer. Its page 27 on the Sun Certified
Java programmers book by Kathy Sierra and Bert Bates - (310-065). I am not sure if I am allowed to quote the entire paragraph, so I wont. What it says is this- consider a protected member a1 in class A in package Z. Class B in package Y extends class A. Package Y contains Class C which extends class B. Package Y also contains class D (which does not extend any class).
Class B and Class C will inherit a1 and can access their a1 through their object. Class D cannot access a1, even though its in the same package as D. This is an exception to the rule that says - Protected members can be accessed by any class in the same package.
The above does not hold if all the four classes are in the same package. In this case, D can access a1.
Thank you.